The Delhi High Court has attached a Kolkata property (No. 15, Ratan Babu Road, Cossipore) owned by Agache Associates, a group company of S K Modi, and has ordered that it will be released only if a sum of Rs 36 crore (Rs 360 million) is paid by the group firm.
The judgement was delivered by Justice Mukul Mudgal based on a complaint filed by Macho Foods Pvt Ltd, one of the creditors of S K Modi firm ModiLuft Ltd.
Sources close to S K Modi said the order was an interim one to prevent the property from being disposed of in any manner till the case was resolved.
In November 1995, Agache entered into a lease agreement with ModiLuft for the property at a monthly rent of Rs 10,000 and a security deposit of Rs 36 crore. The possession of the building, however, was never given to ModiLuft.
Prior to this, in November 1994, ModiLuft came out with a rights offer for 2.42 crore shares priced at Rs 96.8 crore. Three S K Modi firms -- Modi Overseas Investment, Kesha Investments and Paradise Credits -- applied for 1.2 crore (12 million) shares, but never paid the Rs 33.3 crore (Rs 333 million) due on allotment of the shares.
Later, as part of the transaction, the security deposit of Rs 36 crore that ModiLuft had to pay Agache was shown as being taken over by the three investment firms.
And, the shares they had acquired of ModiLuft were shown as being fully-paid up shares. ModiLuft, therefore, lost the right to claim Rs 33.3 crore from these three investment firms.
The court has ruled that the entire transaction between ModiLuft and Agache 'creates bona fide doubts' since there is no convincing argument for why a Rs 36 crore deposit should be given for a property whose rental was just Rs 10,000 per month, more so since Agache 'is a related party'.
'It is clear', reads the judgement, 'that the convoluted transaction entered into by the company with Agache Associates prima facie appears to be a strategy devised to account for the allotment and call money payable for 1,15,49,272 shares valued at Rs 33,31,80,880 by three investment companies belonging to the S K Modi Group. The very fact that the rental for the premises is only Rs 10,000 per month and the security deposit as large as Rs 36 crore is sufficient in my view to taint the transaction.'
Last year, auditors S R Batliboi & Associates sent in its report heavily qualifying the accounts of ModiLuft.
It observed that substantial assets are not in the possession of the company. It was noted by the auditors that during the financial year ending November 1997, the company paid an advance of Rs 36 crore to Agache for taking on lease the Kolkata property.